Category Archives: microfinance

Agency Banking and Micro-Savings

Banking Hall Woes: Last week I spent about 6 hours in 6 different banking halls, trying to deposit or withdraw cash, make cross-bank transfers, utility payments and complete other bank transactions. Some observations:
– Banks with several empty ‘teller’ windows even as customers queues get very long
– Employees who sit at the front desk but don’t serve customers as they do back office transactions, reports & reconciliations
– Disinterested employees who’d rather gossip in vernacular than serve customers
– @kainvestor tweeted: it takes 1 hour, 2 branches and 4 tellers to get one foreign bankers cheque done at #StanChart. Still waiting #fail
– Customers who ‘book’ places in the queue. As the queue shortens near the front, they walk up from where they have been sitting and edge back in front of the person, who they had queued with thirty minutes earlier
– Older banks like Barclays as you to bring a passport photo and get a referee signature to open an account, while new banks like equity bank and family staff will snap your picture with a digital camera.
– There are no more developments in e-banking being rolled out in Kenya; new bank – customer interface deployments are in the areas of phone/mobile/m-banking
– Despite the millions of masses on mobile banking, the bulk of business in Kenya is cheques-based. Cheques remain awkward, prone to errors, and are resented as a form of payment as recipients have to wait for up to four working days to get money from the date they present their cheques. Assuming there are no errors, clear over four working days.
– From a Central Bank of Kenya 2009 supervision report you can get an idea which banks halls are likely to be crowded going by their number of deposit customers: Equity Bank is No. 1 with 4.0 million followed by Co-op bank with 970,000, KCB 751K, Barclays 748K, and Family 574K. Least crowded may be banks like City Finance 654, UBA 832, Development bank 1,022, Middle East 1,462, and Equatorial 1,981.
(images from Afromusing’s post on how to get Safaricom 3G on your ipad)

Mobile money banking solutions Banks have tried to minimize the prevalence of queues, usually longest at month ends rather than mid-month, by offering alternative channels such as mobile banking and ATM facilities. A few years ago, the push was to develop Internet-based banking, but that seems to have been set aside by the industry to focus on (mobile) phone-based avenues.
Last month also brought M-kesho, a partnership between mobile giant Safaricom and a leading bank Equity Bank. This one was very notable as it was marketed as one in which Equity Bank account holders could earn interest on money saved through their mobile phone – and this has been widely written about widely:

From the blogsIdd Salim. Nothing new, Zain Zap has done this since 2007, but Safaricom is like Man U. They have ‘refs‘ who favor them game after game and win battles that are not even their own.
Kainvestor: Too complex and not particularly new
Rombo , Safaricom’s 17,500 M-Pesa agents will now operate as part of Equity Bank (account opening, withdrawal/deposit) which has 80 branches countrywide
Majibu: (after M-kesho) Safaricom can do better – by working with local developers and allowing them to develop on their platform. Safaricom needs to learn from the likes of Apple, the success of the iStore is because each developer is given an equal chance.
White African: As others have pointed out, this isn’t exactly groundbreaking and new. Why is it big then? It’s big because of who is doing it: the giants of the banking (equity) and mobile sector (Safaricom).
– @wanjiku suggested that her bank, Family bank should partner with Zain

Others – A comment at the CGAP who advised on the creation of M-pesa noted that hopes that system failures that plague m-pesa will be a thing of the past
– Equity Bank’s CEO made one comment on TV, about how this made sense as they (Equity) had launched a mobile banking application (EAZZy), but they found over time that could not compete with M-pesa so were folding it to join M-pesa.

More mobile variants: What does that mean for other banks? Despite @wanjiku’s earlier suggestion Family Bank went ahead and signed with Safaricom, not Zain, upgrading their existing mobile application into one called existing mobile banking application into new called Pesapapwhich also allows transfer from account to/from m-pesa and mobile service providers Cellulant rolled out at the same time with one called lipuka

Other thoughts on agency banking Vis a Vis m-kesho – Safaricom has very subdued brochures about M-kesho – with which one can transfer funds to from their bank account at Equity and all the benefits (micro savings) and product hype is by the Equity side. Odds are that most of Equity’s 4 million customers are M-pesa account holders already
– M-pesa cash has been held in trust by CBA Bank since its inception. Will Equity angle for a piece of that?

Enter Agency Banking: The sub-text of M-kesho and other variants is the emergence of agency banking in Kenya, a process endorsed by the Government of Kenya to bring more banking services to more of the (unbanked) population. Agency banking is supposed to take customers out of the bank halls and out to kiosks and villages; as @Rombokins noted, Equity Bank scales up from having 80 branches, and can now (potentially) sell its products through 17,000 agents of M-pesa.
CBK recently published their Agency Banking Guidelines which include provisions on what agents can and can do

Can Do: – Agents can be limited liability companies, cooperative societies, parastatals, trusts, partnerships or individuals. Agent applicants are judged based on their network (number of agents per province), services to be provided, anti-money laundering procedure, strategy and financial projections envisioned from agency business. Other factors considered will be company registration documents, audited accounts, availability of funds, bad credit reference, reputation, unclear source of funding, or criminal prosecution – which are some of the reasons for an application to be struck out. Also a license can be withdrawn if an agent is loss making, or a sole proprietor passes on
– The agent may provide services to multiple institutions (no contract between institution and agent shall be exclusive and an )
– All agent settlements must be in real-time
– Agents must receipt all transactions
– Some of the services agents can perform include cash deposit/withdrawals, loan repayments, bill payments,
Salary payments, debit cards, collection of mail

Can’t do: Faith-based, non-profit, non-governmental organizations are not eligible to engage in agency banking
– Agents may not use such names as ‘bank’, ‘finance’ in their brands
agents may not charge customers for services directly
– Agents may not transact when the system is not operating (e.g. m-pesa downtime?)
Agents may not open accounts, offer guarantees, or appraise loans
– agents may not undertake cheques deposit or encashment (cash only) and may not transact in any foreign currency

Summary: Banks still require that customers come to the halls, for most services, but with agencies can they get served better (and perhaps cheaper) elsewhere? The use of dealers and agents helped transform the telecommunications sector in the span of a decade – from having a monolithic giant (Kenya post & telecommunications) where Kenyans had to queue and buy lines, pay for equipment and other bills (and which served ~100,000 customers) to now where customers able to do the same at kiosks all around the country (serving 20 million customers) Can banks mirror the phone model of growth through agents? It’s a tough call as the safekeeping of money or the incurring of a debt (by taking a loan) is one that calls for caution on the part of the customer.

But taking a loan is a sophisticated process – as most customers need to ask the loan officer what rate am I getting? what is the payback and installment? Even if someone is desperate and signs for a loan without reading an agreement, or swipe a credit card readily, they will over time come to learn the cost of transacting as they will read and review documents, especially if they feel they are being shortchanged. It seems that lending is beyond the training and capacity of agents – and the CBK has recognized this by limiting them to being a medium for repayments. So if you want to get a loan with m-kesho, you get that information from a (trained) Equity loan officer, not an M-pesa agent.

Finally, micro-savings or savings by poor people is more about the principal, not interest. i.e there has to be a mandatory obligation to save, which is difficult for someone trying to build up savings to revoke. E.g. group schemes, chamas, investment clubs, SACCO’s have an obligation to save that binds its members through a social bond of their mutual upliftment. An obligatory commitment is also a factor in larger savings programs like mortgages or pensions.

Microfinance Moment

A peek at the microfinance institutions sector (MFI) the cousin to the banking sector. During the Africa -Middle East Regional micro-credit summit held in Nairobi in April 2010, several participants also exhibited their MFI products and services

Services to MFI
AMFI the association of microfinance institutions – Kenya offers capacity building, industry lobbying, performance monitoring and linkages to members. On a larger international scale, you have the UN! Doing this through the UN Advisors Group
– Bridging the branchless banking gap by CGAP
Branchless banking equipment includes devices from ingenico and craft silicon and a micro-payment (mobile and online) from Impala to deliver low cost financial and transactional services

MFI product advisory services from MicroSave as well as research and capacity building in micro saving and product delivery techniques – they have advised Equity Bank, Family bank and consulted on MPesa formulation.
Hedging for MFI’s to eliminate currency risk from MFX Solutions
– MFI support from the Grameen Foundation has funded $16 million to MFI’s in Ethiopia, Kenya, Ghana and Nigeria and supported Applab partnership with Google) for information to rural Uganda farmers and Ghana to help new expectant and new-born mothers access medical care via mobile phone.
Management services, and technical advisory to MFI’s from ACCION
– Private finance to MFI’s from Oiko Credit examples of which was Kshs. 71 million to Githunguri Dairy Farmers Society as well as to Uganda Women Finance Trusts, Nyeri Tea Growers, Daystar University (partially supported by Grameen). Also, another from Unitus which raises funds & grants, advises & arranges capital to grow innovative MFI’s 23 in 9 countries worldwide including Jamii Bora Kenya and SKS India.
– Loans in local currency in Africa from BlueOrchard to established MFI’s (minimum $1 million total assets, and at least 2 years old)
– MFI lending cost comparison (APR based) by the MFTransparency (report covering 90% of Kenyan MFI’s will be on their site in a few weeks)
Software to administer MFI loans from Loan Performer a highly rated package.
– Recycle your cell phone into MFI loans with Chiapas

Unique products
Matatu loan insurance accessible to members of the Jitegemea credit scheme
Micro health (Bima Ya Jamii), home beautification and other loans from SMEP and their loans are repayable by MPesa
Medical health (Faulu Afya) plans from Faulu Kenya which can provide inpatient cover up to 1 million (~$13,000) as well as from AAR Credit to pay for AAR Health packages in low installments
Micro-insurance from Microensure. A similar product on livestock insurance was featured in the Economist recently
Goat meat and poultry boiler accessible to Yehu MFI (operates at Kenya Coast
Livestock trading, micro health, business acquisition and other loans from KADET – The Kenya Agency for the Development of Enterprise & Technology, which is an affiliate of World Vision.
– The world famous Money-maker water pumps from Kickstart helping small-scale farmers out of poverty
Venture capital (equity partnership loans up to 150 million or ~$2 million) as well as contract financing and industrial finance from Fusion Capital targeted at SME’s (not MFI’s)
– Various loans for women entrepreneurs from the PAWDEP – the Pamoja Women Development Program
Start-up loans from Elmseed ($2,000 first year, 10% simple interest) small loans, big futures, and Kenya government Women Enterprise Fund and Youth Enterprise Development Fund borrowing is secured by group collateral)

Village savings & loan associations (VSLA) from CARE introduces more people in Africa to financial services than any other international organization

Local Banks
– Citi whose Citi Foundation has lent $80 million to MFI’s over the last 11 years in 88 countries in areas like colleges and neighborhood revitalization.
Equity bank with Vijana business loans targeted at members of youth groups as well as fish loans uvuvi biashara to finance nets, cooling equipment, boats etc.
– KCB with bankika a business package targeted at young entrepreneurs

New Banks
Jamii Bora Bank which bought a small bank in a reverse merger claims that with its over 200,000 members is the largest MFI in Kenya.
KWFT – the Kenya Women Finance Trust Deposit that was licensed this week deposit-taking MFI by the Central Bank of Kenya offers startup funding and LPG (gas) among many other loans. KWFT which claims over 334,000 members slots in as a mid-tier bank

Bank to acquire micro-financier

Trying to fathom how or why Kenya’s smallest commercial bank City Finance would be interested in acquiring micro-financier Jamii Bora which has over 170,000 members.

let’s merge

Nevertheless the Kenya Finance Minister has cleared the way for the deal to go through with Jamii Bora who are in the money, having recently repaid Acumen Fund their $250,000 loan (~Kshs 19 million) and completed a substantial portion of their housing project in Kitengela.

2009 Kenya Bank Rankings Part III – Other Intermediaries

In Part 1 was a list of all banks and Part 2 had the top 10 banks in Kenya this year. There are other financial intermediaries of note including:
UBA: launched in Kenya With a capital base of about 1.1 billion and now have 3 branches in Nairobi. UBA is reaching out to customers, embracing new media like blogs and twitter, – (@ubagroup and has gotten new funding – would rank in the low 20-soemthign of Kenyan banks after just a ½ year of operations
Faulu: Faulu Kenya Was licensed in July 2009 as the first deposit taking micro finance institution by the central bank of Kenya. Its balance sheet today would be about 6.5 billion, with over 2 billion in loans (last accounts seen are 2007)
KWFT: even larger than Faulu, is the Kenya Women Finance Trust. Its assets would be in the region of Kshs 15 billion, with about 12 billion in loans (extrapolating from 2008 accounts).
KWFT which is in government plans to convert to a women only commercial bank already has a national footprint or branch network that rivals any of the larger commercial bank and would rank somewhere in the teens of bank rankings

other intermediaries

SACCO’s: The Central Bank of Kenya estimates assets of the entire banking sector at Kshs. 1.18 trillion ($17 billion – CBK Governor speech in September 2009) while the Ministry of Cooperative Development estimates assets of the cooperative sector (SACCOS), with 12,000 societies and 8 million members at about 200 billion ($2.7 billion) – whose members save funds and borrow against these along with guarantees from other members in lieu of traditional bank collateral.

Some of the notable large SACCO’s (comparable in size to small & mid-size banks, but with larger customer bases) in the country are:
1. Harambee SACCO: (mainly civil servants) –with assets of 12 billion ($160 million), and loans of 7.5 billion and said to be the laregst SACCO in Kenya
2. Mwalimu SACCO: (mainly school teachers) with assets of 10.2 billion and loans of 9.2 billion
3. Afya SACCO: (mainly health industry workers) – assets of 4.75 billion, and loans of 3.79 billion
4. Kenya Bankers SACCO: bank industry workers with 3.3 billion in assets 2.8 billion in loans

How to Get an M-Pesa Refund

and other Safaricom tales

M-Pesa mistake: I interacted with two products over the weekend from Safaricom: One is of course MPesa from Safaricom (Kenya’s largest mobile company), the money transfer system that has been the talk of the remittance and mobile banking world; but what should be a Kenyan success story, is a Vodafone (UK ) tested, developed, and rolled out here as a Safaricom licensee. There was quite a bit of discussion of that at the mobile for change summit on Saturday in Nairobi, but that’s for another day.

My M-Pesa tale is one that many of the 6 million registered users have probably experienced. You go to a pharmacy/cyber café/supermarket and pay a Safaricom agent your money to load you phone up with funds (up to Kshs. 35,000 or ~$450) and zap it off to pay for anything – grandma’s medicine, farm inputs, auto spare parts, satellite TV, etc. the list of MPesa uses is growing

You then wait for a few seconds and get a confirmation message of the transfer, only to discover that you have sent the money to the wrong recipient! Somewhere in Kenya, there was a lady with an unexpected month-end bonus from an anonymous donor. Common rare courtesy calls for one to refund the money, but #$%* did not answer my calls.

It appeared that I would not be able to persuade her to refund my money and so I wrote it off as money lost. I went back to the same agent, and paid money again and sent it off to my aunt, this time with the correct number.

I was till mad and went on to @Twitter ranting and raving that I had sent the wrong person my money and that #$%* had probably gone on a celebration spree as some idiot had sent her a weekend bonus. But on twitter my prayers were answered – by @69MB (who’s traveling in Tanzania) and @Ngeny who sent tweets back, that I could halt that transfer unless #$%* had already withdrawn the money.

Next, I rushed and called the dreaded (always busy) customer service line at Safaricom (#100) to try and get my money back. After a dozen attempts I got through and was asked to call another line at Safaricom (#234). This one was even busier, but I eventually got through to a gentleman, and I explained the error I made. He asked several questions – my name, intended recipients number, amount sent, number wrongly sent to, my birth date etc. I had all the answers and was every relieved when he said that my money would be refunded within 72 hours. EDIT (uhusiano add that there is an Mpesa Customer Care dedicated line 0722002200)

Oh and about a ½ hour after I finished with Safaricom #$%* tried to call me, perhaps she had raced to agent to withdraw her booty only to be told that the transfer had been held up. I was courteous enough not to answer her call and yell at her

So I now have my money back (still in my phone) and I’ve learnt, thanks to Twitter, and Safaricom, that it’s possible to get an M-Pesa refund


official advice from Safaricom

If you send money to the wrong number:
– Call Line 234 immediately and provide them with the number that has erroneously received the cash.
– Funds sent to a wrong number will be reversed only if still available in the wrong recipients account.
– If successful, you will receive an SMS indicating that a reversal has been done

Micro air-time loan : The other Safaricom product I tried to use was Okoa Jahazi (rescue a sailor in Swahili? – someone correct me) (Okoa Jahazi literary means save/rescue a ship/boat/dhow in Swahili) which works on the premise that you may be stranded somewhere and need to maker an emergency call but don’t have money or are not in a place where you can buy an airtime voucher to complete the call.

Okoa Jahazi is a 50 shilling ($0.65) airtime voucher, almost a micro-loan, which you can request from Safaricom by typing a simple code. It’s not free and will be deducted the next time you purchase a similar voucher. It also attracts a 10% levy, so you get just 45 shillings.

I requested the voucher, as an experiment and made some calls. I then bought a replacement 50 shilling voucher which paid off the micro-loan from Safaricom. But I had a bit of difficulty after that; I could not call a rival network (Zain, Orange) or browse the internet, using the borrowed airtime – it was strictly for making calls to other Safaricom users. So I had to buy another voucher, to get my credit up and out of my micro-debt. This comes when you don’t read the fine print. Anyway it’s a useful service, but one that should only be used for emergencies.

Summary: So we have two products form Safaricom. One I have used several times, and will probably use again, one that I hope I will not have to use again (emergency only). The rules are quite clear, but few read the fine print of the offers made by service companies. It makes sense that the micro-loan is restricted to minimal emergency functions, but it would also be nice of Safaricom to inform their (6 million) MPesa users that it is possible to get refunds from M-pesa. If I was not on @Twitter I’d have lost a lot of money